Turnover and Stability

Tenant turnover is a key factor in an investment’s predictability and workload. Although office space is costly to re-tenant, office tenants can provide greater stability with the potential for lease renewals and a tenant remaining in a single space longer. Office leases in Arizona are typically between three to five years. However, when a tenant requires a new buildout, landlords will require a seven- to ten-year lease to make the economics pencil. This helps the landlord with lower turnover, which equals lower vacancy risk, as well as time and costs associated with preparing and marketing the property. For these reasons, office investments appeal to many commercial investors.

Retail spaces benefit from constant exposure to customers, creating a built-in marketing effect for the property. The average retail lease in Arizona varies based on landlord and tenant objectives. Ironically, retail tenants may turnover more frequently due to customer-driven demand, but retail space is generally less expensive to re-tenant than office space. Fortunately, high foot traffic can generate interest from potential future tenants, helping minimize vacancy periods when a retail space becomes available. 

Lease Structures

Lease length isn’t the only difference between office and retail agreements. Some lease structures offer higher returns but risk a more unstable rate. Others provide stability with potentially lower returns. Regardless of the lease structure, the tenant pays a base rent and all expenses related to the property. The most common leases include:

• Full-Service Gross Lease: A single, all-inclusive payment covering rent, utilities and all property expenses, including triple net costs. The tenant pays for
• Modified Gross Lease: Base rent, which includes common area maintenance plus certain tenant responsibilities like utilities or janitorial services.
• Triple Net Lease (NNN): The tenant pays base rent, utilities, property taxes, insurance and building maintenance or repairs. This is common for anchor tenants or single-tenant retail properties. Triple net leases vary from region to region, so read the tenant lease closing to determine what is included in nets.
• A variation of the NNN lease is the Percentage Lease: The tenant pays a fixed base rent plus a percentage of their sales. This lets the landlord share in the tenant’s success, so rent increases if the business does well and stays lower if sales are slow.

Retail spaces typically lean more toward triple net, with or without percentage rent. Office leases can be full-service gross, modified gross leases or triple net, based on the building design and type (multi or single tenant).

Location and Visibility

Location drives performance for both property types, but the priorities differ. Retail properties thrive on visibility and accessibility, often in high-traffic shopping centers, mixed-use developments or standalone sites. Vehicles per day, foot traffic, signage and proximity to complementary businesses directly influence rent potential and overall property value.

Office spaces prioritize accessibility for staff, ample parking and a professional setting that encourages collaboration and productivity. Proximity to highways, transit and other businesses enhances the building’s appeal and credibility. While street visibility is less critical, the right location supports long-term tenant retention, contributing to stable, consistent returns.

Expenses

Both property types involve shared expenses for common areas, but the components can differ. Retail CAM (common area maintenance) fees often cover parking lots, landscaping, lighting and property management across the shopping center. Office CAM fees typically include all of the exterior and interior maintenance, which includes janitorial services, security, lobby, elevator, restroom and stairwell maintenance, and HVAC repairs. Office budgets tend to be more consistent month to month. Understanding these differences in net operating income and overall property performance is critical when evaluating the asset.

Tenant Improvements and Adaptability

Retail spaces often require customized buildouts to fit a brand’s operational needs, which can mean higher upfront costs for tenant improvements. Landlords contribute minimal to most retail tenant improvements because when the tenant vacates, the buildout has little if any value to the new occupant.

Office spaces usually have standardized layouts. As a result, landlords invest more into a new office tenant’s buildout then a retail space. While tenant improvements are still common for office properties, it’s important to remember that everything is negotiable. When evaluating a long-term commercial investment, weigh the cost of re-tenanting vacant suites.

Market Trends and Flexibility

Evolving work habits and consumer behavior are shaping the performance of both property types. Office spaces with adaptable layouts, shared amenities and modern infrastructure can attract longer-term tenants and sustain value in a changing market as we continue to see a shift away from work-from-home models. Meanwhile, retail properties that accommodate hybrid business models, smaller footprints or experience-focused layouts can capture higher foot traffic and stay competitive in such an online world.